In India, Goods and Services Tax (GST) has simplified the tax structure for businesses, unifying various indirect taxes. However, there are specific provisions in GST that cater to different types of businesses, such as traders and manufacturers. These provisions ensure that businesses with distinct operations follow the most suitable tax regulations for their needs. One such provision is the option for businesses to obtain separate GST registration based on their business activities. In this blog post, we will discuss the importance of separate GST registration for traders and manufacturers and the benefits it offers.
Threshold limit for GST Registration
Understanding GST Registration
GST registration is mandatory for businesses whose turnover exceeds a prescribed threshold limit or those involved in interstate supply. Registration allows businesses to charge and collect GST on their sales, claim input tax credit on purchases, and comply with the GST law.
However, the nature of the business plays a crucial role in deciding the type of GST registration required. For example, manufacturers and traders operate differently, and the tax implications can vary accordingly.
Traders vs. Manufacturers: Key Differences
Before delving into the concept of separate GST registration, it’s important to understand the distinction between traders and manufacturers:
- Traders: Traders are businesses that buy goods and sell them without any processing or alteration. They are not involved in the production of goods but may engage in the distribution of products. For example, a shopkeeper selling garments purchased from wholesalers is a trader.
- Manufacturers: Manufacturers, on the other hand, are involved in producing goods. They may source raw materials, process them, and produce finished goods for sale. For instance, a textile company that spins cotton into yarn and then weaves it into fabric is a manufacturer.
Why Separate GST Registration is Important
Both traders and manufacturers must comply with the GST law, but their operational requirements are different. Hence, separate GST registration can offer several advantages:
1. Distinct GST Liabilities
- Manufacturers: Manufacturers can claim input tax credit (ITC) on the raw materials, machinery, and services used in the production of goods. This reduces the tax burden on their operations.
- Traders: Traders can claim ITC only on the goods they purchase for resale. Since traders are not involved in manufacturing, their credit claims are limited to the goods they buy for onward sale.
By obtaining separate GST registration for manufacturing and trading units, businesses can clearly segregate their GST liabilities and claim the correct amount of input tax credit.
2. Simplified Compliance
GST law requires businesses to file regular GST returns (GSTR-1, GSTR-3B, etc.). Separate GST registrations for manufacturing and trading units simplify the compliance process, as each unit will have its own set of returns, making it easier to track liabilities, pay taxes, and maintain records.
3. Eligibility for Special Schemes
Manufacturers and traders may be eligible for special GST schemes based on their business turnover. For instance, manufacturers may benefit from the composition scheme, which allows them to pay taxes at a lower rate with simpler compliance. Traders might also have the option to avail of schemes tailored to their needs. Separate registrations help businesses qualify for these schemes without confusion.
4. Ease in Auditing
In case of an audit, having separate registrations ensures that the tax authorities can assess the manufacturing and trading units independently. This minimizes complications and ensures proper documentation for each business activity.
5. Better Control Over Operations
With separate GST registration, manufacturers can maintain better control over their production processes and tax filings, while traders can focus on their retail or wholesale operations without mixing up the input tax credit or returns.
Process for Obtaining Separate GST Registration
Businesses that engage in both manufacturing and trading activities need to apply for multiple GST registrations under different business activities. The process for obtaining separate GST registration is as follows:
- Determine the Need: Ensure that the business meets the threshold limit for GST registration and requires separate registrations for its manufacturing and trading arms.
- Submit Application: Submit an application for GST registration for both manufacturing and trading units through the GST portal. Each unit will need to provide relevant details such as the nature of business, PAN number, business address, etc.
- Obtain GSTIN: Once the application is verified, the GST registration number (GSTIN) will be issued separately for both the manufacturing and trading units.
- File Separate Returns: After receiving the GSTIN for both units, businesses must file separate returns for the manufacturing and trading activities, ensuring compliance with the law.
Conclusion
Separate GST registration for traders and manufacturers is a crucial step for businesses to streamline their tax operations and maintain clarity in their compliance. By opting for separate GST registration, businesses can benefit from a structured approach to claiming input tax credits, simplifying compliance, and taking advantage of specialized schemes. Therefore, if your business involves both manufacturing and trading, it is advisable to seek separate GST registrations for each activity to ensure smooth and efficient tax management.
If you’re unsure about the process or need assistance with GST registration, it’s always a good idea to consult a tax professional or GST consultant.
GST FAQ Section
Q1. If a company in Maharashtra holds only one event in Delhi, will they have to register in Delhi? Will paying IGST from Maharashtra suffice?
Answer:
A separate registration in Delhi is only required if you provide any supply from Delhi. Otherwise, registration in Mumbai is sufficient, and you can pay IGST on supplies made from Maharashtra to Delhi.
Q2. Will a separate GSTIN be allotted to a registered person for deducting TDS (if they have PAN and TAN as well)?
Answer:
Yes, a separate GST registration as a tax deductor is required to deduct TDS under GST.
Q3. Are separate registrations required for trading and manufacturing by an entity in one state?
Answer:
No, only one GST registration is required per state for all activities, whether trading or manufacturing.
Q4. Will the turnover of agents be added to that of the principal for registration?
Answer:
No, the turnover of agents will not be added to that of the principal for GST registration purposes.
Q5. I am registered in Tamil Nadu and receiving services from an unregistered dealer in Andhra Pradesh. Should I take registration in Andhra Pradesh to discharge GST under RCM?
Answer:
No, as a registered person in Tamil Nadu, you do not need to register in Andhra Pradesh. The unregistered dealer in Andhra Pradesh must pay tax on the supply, and you are required to pay tax under the Reverse Charge Mechanism (RCM) for such services.
Q6. If I take up the composition scheme under GST and purchase goods from an unregistered person, will I be required to pay GST to the government?
Answer:
Yes, if you are under the composition scheme, you are required to pay GST on a reverse charge basis for purchases made from unregistered persons.
Related Links:
Process for GST Registration
GST registration process is a step-by-step activity. Since it is an online process, you have to visit the www.gst.gov.in portal. more
Download online GST Certificate
You can download your GST certificate online on the GST portal by following the simple steps. more
How to search GST number online?
You can search the GST number online by entering the GSTIN or by entering the PAN Number. more
GST registration limit 40 lakhs notification
Readout about the GST registration limit for goods and services in India with notification details. more
